Credit institutions reduce cross-ownership

On February 19 Viet Nam Maritime Joint Stock Bank (MaritimeBank) sold 64.2 million shares of Military Bank (MB), accounting for 4 per cent of the military-owned lender’s registered capital.

The buyers were a group of investors from Dragon Capital Fund. Viet Nam Investment Fund Management Company (VEIL) bought 25.2 million shares while Amersham Industries Limited and Norges Bank bought 13.58 million and 25.5 million shares.

The move helped MaritimeBank pare its ownership of MB to 4.96 per cent, bringing it within the central bank’s ownership cap of 5 per cent.

The deal was worth an estimated VND1 trillion (US$44.8 million), a windfall profit for the bank.

Earlier the Import and Export Joint Stock Bank (Eximbank) suddenly sold 300 million shares of Sacombank, reducing its ownership in the latter from 9.6 per cent to 8.76 per cent.

Eximbank plans to sell more shares to cut its ownership to less than 5 per cent.

The cross-ownership in the banking sector was mainly the result of converting 13 rural banks into urban banks in 2005-07.

Before the conversion, their capital was small, but they had to recapitalise in 2011 to meet the mandatory capital requirement of at least VND3 trillion ($134.5 million). They had to find boost owners’ equity by 10-20 times in just five years. So they had to rely on State-owned and private corporations to buy their shares.

As of June 2012, 56 cases of bank-business cross-ownership were identified.

The most common form of cross-ownership has been State-owned banks owning large stakes in joint stock and joint venture banks. Most large State-owned enterprises also invested in joint stock banks. Many banks are even controlled by a single entity or person. Some banks invested in securities companies and fund management companies.

Soon the cross-ownership became a tangled, complex web that put paid to transparency, thus putting the whole system at risk.

One of the biggest problems caused by the banks’ cross ownership is that in many cases the shares changed hands several times, with their values getting artificially inflated by the complex ownership patterns.

To untangle the web that cross-ownership became and strengthen the banking sector, the Government and State Bank of Viet Nam decided to restructure it through the latter’s 254 Scheme.

The scheme’s main targets in the restructure during 2011 – 15 period were to improve financial soundness and consolidate the operational capabilities of credit institutions; improve the safety and efficiency of credit institutions and ensure compliance and market-based principles in the banking sector.

A circular issued under the scheme prohibited credit institutions from owning 5 per cent or more of other credit institutions. This has forced banks to sell their stakes in other credit institutions, significantly reducing cross-ownership.

A major outcome of restructuring credit institutions is a substantial reduction in cross-ownership and cross-investment in credit institutions.

According to the Vietnam Business Forum website, cross-ownership among credit institutions reduced from seven cases in 2012 to only three by late last year. Bank-business cross-ownership fell from 56 in 2012 to 12.

This was also a result of divestment of non-core business by SOEs. Banks divested their stakes in companies to concentrate on core business activities. Credit institutions divested nearly VND8.8 trillion worth of stakes in companies between 2012 and June 2015.

But not all banks have been ready to sell their stakes in other credit institutions and proffer various reasons for their delay such as unfavourable stock market, lack of suitable partners and sharp fall in share prices.

Vietcombank, for instance, has owned 101.24 million shares of Eximbank (EIB), or 8.19 per cent, since it bought them in 2010 at VND9,995 per share.

After climbing to VND15,600 in 2015, the share has fallen back to around VND10,400.

Besides, Vietcombank owns over 5 per cent stakes not just in Eximbank but also three other lenders — 9.6 per cent in Military Bank, 5.1 per cent in Orient Commercial Joint Stock Bank, and 10.9 per cent in the Cement Finance Company – and analysts say it is not easy for Vietcombank to sell thousands of billions of dong worth of shares when the stock market is weak.

To evade the cross-ownership regulation, some banks carry out a charade of divesting by transferring their holdings to front organisations or even individuals and technically fulfilling the 5 per cent requirement.

Trade surplus, but will it last?

Viet Nam’s trade surplus hit $865 million in the first 2 months.

Exports in January and February were worth US$23.7 billion, up 2.9 per cent year-on-year.

The US was Viet Nam’s largest buyer, importing $5.1 billion worth of goods, followed by the EU, China, Japan, and South Korea.
The trade surplus is a positive sign for the economy.

But analysts wonder if the trend will continue and there will be a surplus come the end of the year.

Their apprehension is not hard to understand since Viet Nam achieved trade surpluses for three straight years until 2014 but ran up a big deficit of $3.2 billion last year.

This year exports of crude oil are down by 63 per cent to an estimated $250 million. The analysts said if the price of oil, one of Viet Nam’s biggest export earners, continues to go down, overall export value would be badly hit since shipments of electronic goods, computers and phones seem to have reached saturation point and are unlikely to rise while the value of the country’s agro-products remain low.

Many recent forecasts also warned that the trade deficit could be higher than last year due to the country’s deeper integration in the region and globally through free trade agreements (FTAs) it has signed.

Thanks to the FTAs, more foreign investors will come to Viet Nam and import more machinery and equipment for their manufacturing facilities.

Besides, export growth seems to have peaked and has begun to slow down in recent years. For instance, last year exports grew at only 8.1 per cent against a target of 10 per cent.

One reason for this is that most Vietnamese export items have low value addition since they are produced under subcontracts, merely assembled or unprocessed.

The majority of agricultural and mineral exports, two of the biggest earners, are unprocessed.

The huge reliance on imported raw materials and accessories increases production costs.

Imports are predicted to rise sharply this year thanks to the economic recovery and the mushrooming of foreign-invested projects due to the country’s deeper integration into the regional and global economies.

The analysts warned that Viet Nam should be properly prepared to fully tap the advantages and shrug off the disadvantages arising from the multiple FTAs to increase exports and keep the trade deficit under 5 per cent of trade this year.

Amendments

Last year the Government approved amendments to a 2014 decree on tra fish farming, processing and exports, but has agreed to delay the changes, instructing the Ministry of Agriculture and Rural Development to take on board the opinions of ministries, other government agencies and exporters.

One of the things it will reconsider is a new rule on maximum water content and ice-to-fish ratio.

The ministry wants the rule to remain but with the road map for its implementation delayed.

It reduces the water content and ice-to-fish limits to 83 per cent and 10 per cent respectively from the earlier 86 per cent and 20 per cent.

The ministry is amenable to applying the old rates until December 31, 2018, before introducing the new ones.

The deadline for tra fish farms to apply VietGap standards and get certification is also now expected to be delayed by a year to December 31,2016.

That the Government agreed to revisit the amendments is regarded as a positive move to help businesses cope with difficulties.

But analysts said weakening quality requirements through the to be revised decree would not be simple since the US Farm Bill contains more stringent stipulations.

Others warned that if the decree is amended, quality standards would take a hit, and so Viet Nam should not amend the decree if it wants to avoid trouble and improve the quality of its tra exports.

A spokesman for the Viet Nam Association of Seafood Exporters and Producers however has told Saigon Times Daily that there is no connection between the amendments to the decree and the US Farm Bill, and Viet Nam is still striving to meet the requirements of the US bill.

The agriculture ministry is working to improve the quality of tra fish and get the road map deferred, he said. — VNS